[MILAN] The European Central Bank and the Bank of Italy have given the go ahead for a merger of Banco Popolare and Banca Popolare di Milano, creating Italy's third-largest bank by assets.
The two banks, which announced their planned merger in March, will be known as "Banco BPM".
"The Bank of Italy, considering the result of its investigation and in the absence of objections from the European Central Bank, has given authorisation for the merger," the central banks said in a joint statement.
The deal is a major development in the consolidation of Italy's fragmented banking sector that has been saddled with around 200 billion euros (S$303 billion) worth of non-performing loans.
The merger had been delayed as the banks struggled to meet higher capital requirements, weighed down by hundreds of billions of euros of bad loans and weak economic growth.
Only in April did Italy's banking sector agree on a five-billion-euro fund to take on bad loans and guarantee that weakened banks can be recapitalised.
Shareholders of both banks are yet to vote on the deal, creating some uncertainty despite the favourable views of analysts.
The new bank would have an 8.2 per cent market share and create a lender with more than 25,000 staff and 4 million customers.